Do I Have To Pay Payroll?

That depends on your business tax structure. If you are a sole proprietor or an LLC, you don’t have to pay payroll unless you start hiring people to work for you. In that case, you get an EIN (Employer ID Number) from the IRS and then pay them on the payroll.

On the other hand, if you are an S corporation, you legally have to put yourself on the payroll. You have to pay yourself what you would pay, somebody else if they were doing that job. There are ways that that can be looked at and adjusted, but you have to pay yourself a standard wage. Above that, you can pay yourself a distribution or draw, which is not taxed in the same way.  

As a sole proprietor, any money you pay yourself gets taxed a self-employment income tax, as well as the regular income tax. 

As an S corporation, any money you pay yourself on payroll, gets taxed a payroll tax, as well as the regular income tax. BUT any distributions you take, fall into a lovely category of only getting taxed the regular income tax.

You do have to pay yourself a standard wage on payroll, but the rest of the money you pay yourself can be a distribution which is taxed much less.

Your CPA will be able to help you determine the right amount of payroll to pay yourself. 

Feel free to reply and ask me any questions you might have on this subject!

Maya Weinreb | Founder & CEO
813-336-1574